The Use of Instrumental Variables in Peer Effects Models

Stephanie von Hinke, George Leckie and Cheti Nicoletti

Oxford Bulletin of Economics and Statistics, 2019, vol. 81, issue 5, 1179-1191

Abstract: Instrumental variables are often used to identify peer effects. This paper shows that instrumenting the ‘peer average outcome’ with ‘peer average characteristics’ requires the researcher to include the instrument at the individual level as an explanatory variable. We highlight the bias that occurs when failing to do this.

Date: 2019
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